Telecom Italia Halts Merger Talks with H3G

By Manuela Mesco

MILAN--Italy's largest telecommunications operator Telecom Italia (TIT.MI) said Thursday it had pulled out of a deal with H3G, part of Hutchison Whampoa (HUWHY, 0013.HK), as there were "no elements to start a negotiation", the company said in a statement.

No further details were provided.

Last April, Telecom Italia had started discussing a possible integration with H3G, aiming at potentially merging the Italian mobile activities of the two companies. But Hutchison Whampoa said it must become Telecom Italia's leading shareholder before talks could go ahead.

Chief Executive Franco Bernabe previously said that "antitrust implications and other hurdles" could make the deal complicated.

After mandating board members to examine the feasibility of the operation and whether it could be beneficial for Telecom Italia, the company suspended talks for a period as it dealt with another important project--the spliting off of its fixed line access network. The Italian firm eventually approved the separation of that asset into a new company in May.

Hutchison Whampoa is not new to negotiating deals with European telecom operators, particularly as acquisitions in the well-regulated markets of Europe can provide stable cash flow despite the region's economic struggles.

The Hong Kong company recently bought Telefonica SA (TEF)'s Irish business, 02 Ireland, for up to 850 million euros ($1.1 billion), while last year it acquired Orange Austria, the country's third-largest mobile operator, from France Telecom SA for $1.7 billion.

The Chinese conglomerate led by billionaire Li Ka-shing had also contacted another Italian mobile operator, Wind, for a possible integration, a person familiar with the matter recently said. Wind, controlled by Russian company VimpelCom, declined to comment.

There have long been calls for Europe's telecom sector--particularly in the troubled economies of the south--to consolidate in order to boost investment and revenue.

Write to Manuela Mesco at [e-mail]

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